After keeping natural gas options traders on pins and needles by teetering on either side of $8 during the session, February futures on Monday ultimately pushed to the upside, reaching a high of $8.100 before settling at $8.095, up 11.2 cents from Friday’s close.

With February options going off the board, Monday’s session was a pitched battle between buyers and sellers of $8 put and call options. Sellers of $8 calls wanted February futures to expire at less than $8, while sellers of the $8 put were seeking the opposite. Buyers of $8 calls were interested in a February futures settlement above $8, but $8 put buyers were not.

Monday also marked the contract’s third consecutive settle higher. Since last Wednesday’s $7.621 close, the prompt-month contract has gained 47.4 cents. How the February contract expires Tuesday is still anybody’s guess, but with each passing session traders are able to tick off one more day of winter that they won’t have to factor into their pricing models.

As for momentum, the bulls are receiving some support from what is expected to be a much larger-than-normal storage withdrawal report Thursday for the week ended Jan. 25. While 185 Bcf was withdrawn last year for the week and is also the five-year average, some estimates for this report are for a withdrawal as high as 300 Bcf (see Daily GPI, Jan. 28).

“The storage outlook has some bullish potential for Thursday’s report, but it looks like heating demand this week and next week will fall below the five-year average, taking some of the pressure off the bulls to cover short positions,” said Tim Evans, an analyst with Citigroup in New York.

Looking ahead, Evans said the East is looking at a major warm-up. According to Frontier Weather’s six- to 10-day outlook for Feb. 2-6, below-normal temperatures will reside in the West and into the northern Plains, but warmer-than-normal conditions will occupy Texas and the central Plains through the entire East Coast. The company’s 11- to 15-day forecast covering Feb. 7-11 is a little more seasonal. Below-normal temperatures will dominate the West, northern Plains and the Upper Midwest, while normal conditions will exist elsewhere during that period.

One New York floor trader on Monday morning said he fully expected options strategies to dominate the day’s trade. He said he expected the market to be “10 cents on either side of $8 all day long,” which the February contract’s $7.940 to $8.100 range ended up complying with. He noted that with the options expiration out of the way by Tuesday, “the market will pick its head up for the next week.”

The trader added that he thought it might be “a bit of a battle over the next week or so” since there are some that are not convinced the market is going up to $8.500 or $8.750 and are willing to sell it between $8 and $8.250.

Some market technicians see prices advancing to as high as $10. “Last week was a clear victory for the bullish case,” said Walter Zimmerman of United Energy. Zimmerman is encouraged because from the standpoint of his analysis, natural gas futures “ricocheted higher” from where he had pegged support (0.50 and 0.618 of the move from $6.838 to $8.481) and the advance also made a bullish candlestick pattern on the weekly chart.

“Any alternate bearish case is seriously damaged by a close above $8.135 (0.618 of $8.481 to $7.570) and the case for a $10 handle will be much improved by a decisive close above $8.290 (0.7862 of same). Expect any early week dip will be a bull market correction,” he said in a note to clients.

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